News Analysis |
Amid the political and the public backlash, PTI led coalition government is expected to take a critical decision on gas tariffs today (Monday) in a meeting of the Economic Coordination Committee (ECC). The Finance Minister Asad Umar will chair a meeting—which would discuss the impacts of the increase in gas prices. The government is likely to create a new slab for poor domestic consumers. ECC of the cabinet would assess the repercussions of the creating four domestic slabs from the existing three.
Currently, the present consumers have three categories — those consuming 100 cubic meters per month consumption are charged at Rs110 per MMBtu (million British thermal unit), 300 cubic meters at Rs220 and 600 cubic meters and above charged at Rs600 per MMBtu. The expectations are that ECC would approve the hike in the gas prices—which would make the commodity costly for the rich, fertilizer & power sector, while, on the other hand, protecting registered exporters and manufacturers of five zero rating industrial sectors.
The incumbent government is aware of the fact that the industrial sector in Pakistan is struggling, and exports have failed to flourish to counter the devastating impact of huge import bill.
The calculations of the Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) show the revenue requirements of Rs 275 billion and Rs 211 billion, respectively for the financial year 2018-19. But, on the contrary, at the current sales prices, the projected revenue of the SNGPL and SSGC is Rs 172 billion and Rs 157 billion, respectively. Resultantly, both the companies can potentially face collective loses of Rs 156 billion.
The OGRA and the Federal government was apprised of the situation and was advised to order the required hike in the prices to allow the companies achieve their projected revenue based on cost plus return on assets formula under license from OGRA. The PML-N government withheld the increase in gas price during its term. The failure to requisite revisions in gas sale prices in the last tenure led to an accumulation of revenue shortfall of over Rs 127 billion.
ECC will review the recommendations of OGRA regarding gas price hike to contemplate a strategy to allow the minimum burden on domestic consumers. Keeping in view the benefits enjoyed by the rich consumers, changes in the slabs are advanced to facilitate the poor consumers. PTI government in its 100-day agenda pledged to bring energy prices in alignment with regional competitors to revive the manufacturing and facilitate rapid growth of SME sector. It also announced to follow the policy of uniform gas prices across the country.
Therefore, today’s decision from ECC will protect the small commercial consumers, meanwhile, the subsidies for the Fertilizer Sector may get reduced slowly to ensure that farmers are not burdened all of sudden. The incumbent government is aware of the fact that the industrial sector in Pakistan is struggling, and exports have failed to flourish to counter the devastating impact of huge import bill. This is why the government is considering to keep the gas prices for the five zero-rated sectors on par to their international competitors.
Government is under huge pressure to fill the hole in its finances. There is no denying that the government would face a backlash over its decision to increase gas prices. In a current financial turmoil, this is a hard pill to swallow, and the previous regime should not be sparred with deliberately not increasing the price causing loses of billions to the exchequer.